Stressed names with bond counterparts have been increasingly
volatile as the loan market chases the easing bond market.
"Anything that's got a pari [passu] is getting smoked," said one
dealer. Traders pointed to loans for Calpine Corp. and
Qwest Corp. as examples. "They're basically bonds with a
credit agreement," said one trader. Calpine's new second-lien term
loan, which is a part of the company's $3.3 billion debt package,
slumped into the 88-89 range from the 91-931/2 context. This loan
is pari passu with the bonds. Meanwhile, Qwest's new $1.75 million
term loan, which has a $500 million fixed-rate piece, dropped about
five points two weeks ago this Friday. But market players said the
loan recovered to the 94-95 range by the end of last week following
a Treasury market rally and the announcement of the deal backing
the second phase of the QwestDex transaction.

Market players said the cause for the volatility may be the
increased participation of non-traditional bank loan players in
these term loans. The loans linked more closely to the high-yield
markets attracted more cross-over investors and hedge fund players,
they explained. Qwest's deal was said to be syndicated out 90% to
hedge funds. While traditional buyside accounts often sit back and
watch, hedge funds trade, commented one buysider. This creates more
activity, more clearly observed prices and volatility. "It's
healthier for the market to find out where the paper should trade,"
he said. Loans with traditional institutional loan players were
said to be relatively stable.

Calpine, in particular, was under pressure this week as the
company prepped a $750 million bank deal to refinance its CCFC1
facility. Traders said the new deal was putting pressure on the
market for the loan, which was already weighed down due to the
massive size of the company's debt package issued last month.
Dealers and buysiders suggested that the upsized deal provoked the
change in appetite for high-yield debt, which was compounded by a
shift in the Treasury markets and the increased flows out of the
high-yield mutual funds. "That is an anomaly. I have never seen
anything like it," one investor said in regards to how Calpine's
paper traded down so drastically.

These factors added to the selling pressure in the market. On
the one hand traders said some bank debt players were selling paper
to make up for losses they took due to the depressed prices of
recently syndicated loans. But others said the accounts simply
wanted to take their profits. "We had a tremendous run in the last
12 months [and] in order to realize gains you have to sell some
stuff," one buysider said. Rick Barraza, senior v.p. of
investor relations for Calpine, declined comment. Oren
Shaffer, Qwest's vice chairman and cfo, did not return calls by
press time.